Ongoing fears over Spain and Middle
East tensions involving Syria and Turkey kept the market in check,
although positive US economic data helped Wall Street's Dow Jones
Industrial Average lift 0.7 per cent in early trading.

Attention in London was also focused on the monthly policy decisions of central banks in the UK and Europe.

The Bank of England produced no surprises by leaving interest rates at
0.5 per cent and holding fire on more quantitative easing (QE), while the
European Central Bank also held rates.

The potential for more QE at the Bank of England's next rates meeting
saw the pound weaken, falling to a two-week low of 1.24 euros.

But sterling rose to 1.616 US dollars as it clawed back some of yesterday's losses against the greenback.

Among stocks, the spotlight was firmly on Halfords after its resurgent sales performance.
With last night's appointment of former Pets at Home boss Matt Davies as
chief executive also well-received, shares moved 37.5p higher to
303.5p.

Sugar and starch firm Tate & Lyle was one of the top risers in the
FTSE 100 after Investec Securities raised its target price on the stock
following recent second quarter figures. Shares were 12.5p higher at
687p.

Royal Bank of Scotland and Barclays were both higher, up 1.7p to 259.8p
and 2.3p to 222.6p respectively, but Tesco fell for the second session
in a row, down 9.8p to 318.2p, as analysts digested the scale of the
challenge facing the supermarket giant following a 12 per cent fall in half-year
profits.

The update from Halfords and another from fellow FTSE 250 company Ted
Baker helped lift spirits among top flight retail stocks amid signs that
consumers are still spending on non-essential items.

Next set the pace with a rise of 3 per cent or 93p to 3592p, while B&Q owner
Kingfisher added 4.2p to 268.7p and Marks & Spencer cheered 3.7p to
365.5p.

Fashion chain Ted Baker was 7.5p higher at 921p in the second tier after
its recent overseas expansion helped it post a slightly
better-than-expected 10 per cent rise in underlying profits. It also increased
its half-year dividend by 10 per cent.

Investors were also watching developments at Redrow, which is currently
the subject of a 152p a share or £562million takeover approach from
founder Steve Morgan.

The group was facing a Takeover Panel deadline for a deal of 5pm today,
but announced after the market close that it had secured an extension to
October 18. Shares were 0.4p higher at 158.9p, reflecting expectations
of a raised offer from Mr Morgan's consortium.

The biggest Footsie risers were Next up 93p to 3592p, Weir Group ahead
38p to 1800p, Tate & Lyle 12.5p higher at 687p and Intercontinental
Hotels up 30p to 1669p.

The biggest Footsie fallers were Tesco down 9.8p to 318.2p, Xstrata off
20.1p to 948.3p, Johnson Matthey 48p lower at 2369p and Lloyds Banking
Group down 0.8p to 38p

16.15: The
Dow Jones has rallied 93.2 points to 13,587.8 after better than
predicted U.S. jobs news, and soothing words about the euro crisis by
European Central Bank boss Mario Draghi today.

Draghi repeated that he was ready to
buy up the government bonds of heavily indebted euro members such as
Spain, and suggested this could happen quickly if they met the
conditions.

David Starkey of Western Union Business Solutions pointed out that nothing new had emerged at the ECB's press conference.

'This isn’t particularly surprising, as markets, policymakers, and European citizens are all waiting to see if Spain manages to become the first nation to apply for ECB chief Draghi’s new OMT [Outright Monetary Transactions, or bond buying] programme.

'Until this programme has been tested, it’s unlikely that there will be much movement from the ECB. Spain, however, seems to be dragging its feet in applying for assistance, as politics continue to hamper action.

More...

'During the accompanying press conference, Draghi managed to talk the common currency up with comments confirming a readiness to engage the OMT the instant a nation successfully applies, as well as a commitment to the "singleness" of monetary policy and the euro currency.'

15.00:

Reassuring updates on the U.S. economic recovery and the state of its jobs market are boosting the mood on Wall Street.

The Dow Jones has opened up 39.2 points at 13,533.8.

Back in London, the FTSE was down 1.8 points at 5,824.1.

13.40:

Military tensions between Syria and Turkey are holding back stocks today - the FTSE 100 is flat, up just 3.5 points at 5,829.3.

Cross border shelling between the two countries has sparked fears that this could escalate into war, and potentially draw in other Middle East countries.

U.S. weekly jobless claims came in better than expected, and stock futures point to a higher open on Wall Street shortly.

In corporate news, designer fashion chain Ted Baker has weathered the tough economy to deliver robust rises in sales and profits. The shares have given back some earlier gains but are still 11p higher at 924.5p. Read more here, including City reaction to the results.

Sugar and starch firm Tate & Lyle was one of the top risers in the top flight after Investec Securities raised its target price on the stock following recent second quarter figures. Shares were 15p higher at 689.5p.

Investors were also watching developments at Redrow, which is currently the subject of a 152p a share or £562million takeover approach from founder Steve Morgan.

With the parties facing a Takeover Panel deadline for a deal of 5pm today, shares were 0.8p higher at 159.3p, reflecting expectations of a raised offer from Mr Morgan's consortium.

12.10:

The Bank of England has kept interest rates at 0.5 per cent and its quantitative easing stimulus programme on hold this month.

The no-change decision will increase focus on next month's meeting, at which most economists expect the Bank to pump more cash into the system.

The FTSE 100 has edged back into the black, trading up 9.3 points at 5,835.1 following a morning wobble.

Ishaq Siddiqi of ETX Capital said increased tensions between Turkey and Syria had prompted investors to cut risk positions.

'Turkey firing at targets in Syria and unconfirmed reports that Iran was mobilising troops on the Turkish-Iranian border curbed upside momentum,' he said.

'Even solid [government bond] auctions by Spain and France failed to lift markets – Spain sold bonds at top end of its target range, drawing strong demand on all lines. France too sold at the top end of its target range with solid demand. Bond yields [interest rates] for both countries are cooler following the auctions,

Siddiqi said Spain would be the main topic of attention at the European Central Bank's monthly press conference, which is due shortly.

'The ECB has left the ball in the country’s court in regards to financial help, however Spain refuses to play. Today’s Spanish debt auction reduces pressure on the country in regard to seeking an imminent bailout.

'For how long can Spain maintain this stance is uncertain but markets are pricing in the ECB buying Spanish bonds in the very near future.'

Royal Bank of Scotland and Barclays were both higher, up 3p to 261.1p and 1.9p to 222.15p respectively. But supermarket Tesco fell for the second session in a row following its half-year results, down 1.7p to 326.2p.

In the FTSE 250, a rebound in bicycle sales following Britain's summer of sporting success helped put Halfords on the right track.

Its shares jumped 13 per cent, up 35.5p to 301.5p, as the car parts and leisure goods retailer followed last night's appointment of former Pets at Home boss Matt Davies as chief executive with a better-than-expected rise in sales.

First-half profits are also predicted to be nearly 20 per cent higher than City forecasts, and it repeated plans to stick with an 8p a share interim dividend. Read more here,including a round-up of City reaction.

Fashion chain Ted Baker was 29.5p higher at 943p after its recent overseas expansion helped it post a slightly better-than-expected 10 per cent rise in underlying profits. It also increased its half-year dividend by 10 per cent.

There was a knock-on effect for High Street chain Next, which climbed 39p to 3538p, and for Marks & Spencer with a rise of 3.05p to 364.85p.

Investors are also focused on jobs news from the U.S. - not only a key barometer of the health of the world's biggest economy, but a potentially decisive factor in the upcoming presidential election between Barack Obama and Mitt Romney.

Will Hedden, sales trader at IG, said: 'Part two of the monthly three-day jobs extravaganza greets U.S. markets today, with the Challenger layoffs report and weekly jobless claims either side of 1pm London time.

'Tomorrow's non-farm payroll (NFP) report comes hot on the back of the first presidential debate, held last night on U.S. domestic policy. There will be another NFP before the November election, but it comes too close to the polling day for it to be a game changer, and so there will be a heavy political focus on tomorrow's number.

'President Obama will need a good read, after losing some of his lead to Mitt Romney following last night's debate. The "IG U.S. Presidential Market" is still showing an Obama win, but the chance is now around 75 per cent, having moved in from the early 80s today.'

Market watch: Latest U.S. economic data signals modest growth

8.25:

The FTSE 100 has opened 23.6 points higher at 5,849.4, mirroring gains in the U.S. and Asia as investors position for some soothing economic data.

U.S. companies added more jobs than expected last month, while the services sector picked up, suggesting the world's biggest economy remained on track for modest growth.

Weekly U.S. jobless claims are due today, followed by the influential non-farm payrolls jobs report on Friday, and it is hoped the numbers will again beat expectations.

'Economic figures from the United States yesterday helped counter-balance some disappointments elsewhere like in Europe and lifted expectations for better than predicted numbers in the coming days,' said Keith Bowman, equity analyst at Hargreaves Lansdown.

'The market is looking for some catalysts and that could come from the third-quarter results season and from economic numbers.'

Investors are also hoping European Central Bank boss Mario Draghi will shed some light on behind-the-scenes wrangling over a bailout for Spain during his monthly press conference later. The ECB is predicted to keep interest rates on hold at 0.75 per cent.

'If Draghi gives any indication that a request from Spain is close or that the conditionality [rules] linked to it will not be as strict as we've seen with other bailed out countries, we should see the markets rally,' said James Hughes, chief market analyst at Alpari.

'An agreement here will show real progress being made by the eurozone which will undoubtedly be reflected in the markets by an increase in risk appetite.'

Meanwhile, Greece's hopes of striking a deal with its lenders before eurozone finance ministers meet next week have dimmed.

Officials admitted yesterday that the two sides disagree on how much the economy will contract in 2013 - a key figure in their calculations.

The FTSE 100 closed up 16.36 points at 5,825.81 yesterday, driven by gains in 'defensive' stocks which are seen as the most resilient to an economic downturn.

The Bank of England interest rate decision is due out at noon with rates widely expected to remain at a record low of 0.5 per cent.

The main focus will be on the BoE's quantitative easing measures and whether it will look to expand the programme in the wake of recent downbeat economic data, although current forecasts are for it to remain unchanged.

Stocks to watch today include:

BHP Billiton: The top global miner is among the companies talking to Petrobras about buying a stake in the Brazilian company's Gulf of Mexico oil fields, the Wall Street Journal reported.

Evraz: Russia's largest steelmaker agreed to increase its stake in the coal miner Raspadskaya by half to 82 per cent.

BAE Systems: EADS chief executive Tom Enders is prepared to talk about guarantees for jobs and production sites in a planned merger of the company with Britain's defence firm BAE Systems, he told Germany's Bild paper.

Halfords: The car parts and cycles retailer picked former Pets at Home boss Matt Davies as its new chief executive, to drive a sales recovery.

The firm also reported strong summer trading as customers were inspired by Britain's Tour de France and Olympics cycling success, helping the group recover some of the ground lost in the spring.

Ted Baker: The fashion label reported first-half profit before tax and exceptionals were up 10.4 per cent to £9.4million, but it remained cautious given the uncertainty in the global economy and said full year results would be dependent on trading in the important second half.

Carillion: The support services and construction firm said third trading was in line with expectations and it reiterated full year guidance. It says it is well positioned to achieve its medium-term targets of doubling annual revenues in the Middle East and in Canada in the five-year period to 2015, in each case to around £1billion.